There have been no nuclear power plants licensed in the United States since the partial meltdown of the reactor core of the Three Mile Island plant in Pennsylvania in 1979.Chris Gardner/Associated Press
Uranium stocks are starting to glow again. Almost three years after Japan shut down its nuclear reactors following the Fukushima meltdowns in 2011, the country is signalling a move back to nuclear power – and the market is cheering.
Cameco Corp., the largest North American uranium producer, rose about 4 per cent on Wednesday, taking the stock to its highest level since mid-2011. Denison Mines Corp. jumped more than 9 per cent.
The moves follow a couple of key developments on energy policy in Japan. Earlier this month, the country demonstrated that some pockets of the population are no longer recoiling from nuclear power when Tokyo elected a pro-nuclear governor, who is backed by Prime Minister Shinzo Abe.
And on Tuesday, the Abe administration made public its first national energy plan since the Fukushima crisis, calling nuclear energy an important source of electricity for Japan. That marks a U-turn in the country's nuclear policy, according to the Financial Times, which noted that the previous administration had vowed to end Japan's commitment to nuclear energy with its 2012 "escape from nuclear" declaration.
While Japan is just one market for uranium, its importance is hard to understate. Prior to 2011, it was the world's third largest market, with nuclear energy contributing nearly 30 per cent of the country's electricity. Its subsequent announcement to suspend its nuclear program – a decision that affected nuclear policy worldwide, particularly in Europe – sent uranium prices tumbling more than 50 per cent as Japan turned to imported fossil fuels.
Uranium producers suffered during the downturn. Cameco's share price, for example, fell as much as 60 per cent from its 2011 high. It has generally been bouncing between $20 (Canadian) and $25 a share over the past two years, which means that Wednesday's rally is the first to break free from this trading range.
David Sadowski, an analyst at Raymond James, estimates that Japan will restart some reactors in the second half of 2014, with a total of six reactors back online by the end of the year. Japan has 50 usable reactors.
"While actual uranium consumption by these Japanese reactors is unlikely to become meaningful for several more years, near-term restarts should compel global utilities outside of Japan to resume long-term contracting on a reduction in the perceived availability of future supply [of uranium]," he said in a note.
Uranium currently trades at $35.50 (U.S.) a pound. Mr. Sadowski estimates that prices will rise to $42 a pound later this year, and to $56 a pound in 2015.
Despite the shifts, analysts are staying cautious on the sector though. The average target price on Cameco is just $16.44, or roughly in line with the current price.
Mr. Sadowski raised his price target on Cameco to $26, up just $1. (Wednesday's rally took the price to $26.47 in afternoon trading.) Canaccord reiterated a "sell" recommendation on the stock with a $21 target. And BMO Capital Markets reiterated an "outperform" recommendation and a $25 target.
Meanwhile, the picture outside Japan is also improving. Edison Investment Research noted that China continues to move toward nuclear energy, with capacity expected to rise from 18 gigawatts to 58 gigawatts by 2020. This forms part of their argument that uranium prices have probably bottomed out.
"Despite the current low level of contractual activity in the market, the tightening supply-demand balance suggests that there is upside risk to the uranium price once uranium buyers return to the market," Edison said in a note released on Tuesday.
"Given the close correlation between commodities and equities, expectations of a uranium price turnaround could therefore drive the recovery of uranium equities."
David Berman